Thanks to my senior’s timely warning, I was able to exit the stock a few days earlier, at a handsome profit. When I called my senior to thank him and ask why he had helped me by sharing such sensitive information, these were his words: “Because you always used to share helpful company and industry data with me from time to time, even when I never asked you for it. You helped me then; I helped you now.”
I believe this positive feedback loop always exists when you engage in the smallest of good acts for others. The acts tend to take a whole circle and return to bless you with positive things in your life. Karma is like a big snowball. Ask yourself, at the end of each day, “Did I do at least one good act to help someone today?” After that, thank the Almighty and your parents in your prayers for all that they have given to you in life. I do this ritual every day and it gives me great inner peace. No wonder Michael Jackson’s song “Heal the World” has resonated so strongly with me ever since I first heard it many years ago.
SIMPLICITY IS THE ULTIMATE SOPHISTICATION
Most geniuses—especially those who lead others—prosper not by deconstructing intricate complexities but by exploiting unrecognized simplicities.
—Andy Benoit
Life is really simple, but we insist on making it complicated.
—Confucius
Simplicity is the result of long, hard work, not the starting point. The ability to reduce something to its essence is the true mark of understanding. But one of the great ironies in life is that when the smartest minds generously share the secrets of their success with us, we ignore them, because they sound too basic and simple for us to appreciate.
“That’s it? It can’t be so simple!” we say, when we hear them giving us simple advice to achieve greatness.
Consider investing. When we read Warren Buffett’s revelation of the only two rules of successful investing—“Rule number 1: Never lose money. Rule number 2: Never forget rule number 1”1—we protest, “Great thought, but is that it? It can’t be so simple!”
Investing is simple, but not easy.
—Warren Buffett
In an interview with Business Wire in November 2011, Buffett said, “If you understand chapters 8 and 20 of The Intelligent Investor (Benjamin Graham, 1949) and chapter 12 of The General Theory (John Maynard Keynes, 1936), you don’t need to read anything else and you can turn off your TV.”2 This advice from Buffett references two classics from the field of investing and economics.
Chapter 8 of Graham’s book talks about not letting the mood swings of Mr. Market coax us into speculating, selling in panic, or trying to time the market.
Chapter 20 explains that, after careful analysis of a company’s ongoing business and its prospects for future earnings, we should consider buying only if its current price implies a large margin of safety.
In chapter 12 of The General Theory of Employment, Interest, and Money (“The State of Long-Term Expectation”), Keynes remarks that most professional investors and speculators were “largely concerned, not with making superior long-term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public.”3
Buffett took the simple but fundamental truths of investing from these three chapters quite seriously and applied them throughout his life, with a high degree of intensity, and it has made him one of the wealthiest individuals in the world.
Take a simple idea and take it seriously.
—Charlie Munger
The simple ideas with intensity of pursuit is what gets you to the promised land.
—Mohnish Pabrai
Buffett’s key takeaway from The Intelligent Investor was this: If you eliminate the downside, then all that remains is the upside. After that, the key is to keep emotions in check and be patient. It really is that simple.
It’s simple but not easy.
In the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand.
—Benjamin Graham
Many newcomers in the investing field consider The Intelligent Investor to be too dry and not “exciting” enough. It does not reveal any secrets to finding the next big multi-bagger, and it does not offer any shortcuts for making money quickly. But, as I have realized through my multiple readings of this book, it does build the character and steely resolve required to become a good investor. And character building, as compared with wealth building, is a much more difficult subject to read about and practice. (For the former, refer to Rudyard Kipling’s poem “If” in appendix B.)
Mohnish Pabrai’s book The Dhandho Investor is one of the more accessible books written on value investing. Just like Buffett, Pabrai has a gift for simplifying complex sounding ideas. In his book, he writes:
Every business has an intrinsic value, and it is determined by the same simple formula. John Burr Williams was the first to define it in his The Theory of Investment Value published in 1938. Per Williams, the intrinsic value of any business is determined by the cash inflows and outflows—discounted at an appropriate interest rate—that can be expected to occur during the remaining life of the business. The definition is painfully simple….
Simplicity is a very powerful construct. Henry Thoreau recognized this when he said, “Our life is frittered away by detail…simplify, simplify.” Einstein also recognized the power of simplicity, and it was the key to his breakthroughs in physics. He noted that the five ascending levels of intellect were, “Smart, Intelligent, Brilliant, Genius, Simple.” For Einstein, simplicity was simply the highest level of intellect. Everything about Warren Buffett’s investment style is simple. It is the thinkers like Einstein and Buffett, who fixate on simplicity, who triumph. The genius behind E = mc2 is its simplicity and elegance.4
The Simplest Solution Often Tends to Be the Best
The grand aim of all science is to cover the greatest number of empirical facts by logical deduction from the smallest number of hypotheses or axioms.
—Albert Einstein
Occam’s razor, named after fourteenth-century English logician William of Ockham, is a principle of parsimony, economy, or succinctness used in logic and problem solving. It states that among competing hypotheses, the hypothesis with the fewest assumptions should be selected. Other, more complicated solutions ultimately may prove to provide better predictions, but in the absence of differences in predictive ability, the fewer assumptions that are made, the better.
Investors should